What happened

Following the post-earnings bounce last week, shares of Stitch Fix (SFIX -1.67%) were trading down 10.8% week to date on Thursday. The dip can partly be explained by the broader market sell-off that started this month, but it can also be tied to other news by the company.

At the start of the week, the personal styling service filed to register $191 million worth of new shares at a proposed maximum offering price of $35.43 per share. New share issuances are usually frowned on by market participants, since they dilute existing shareholders' investment. The timing of this one certainly looks questionable, since Stitch Fix's share price is already well off its highs this year.

A red down arrow with a picture of a dollar bill behind it.

Image source: Getty Images.

So what

The amount to be registered totals 5% of Stitch Fix's total shares outstanding, which is not an insignificant number. The purpose of the new shares is intended to go toward the company's 2017 executive incentive plan. 

Given the stock's 34% decline year to date, the timing of the proposed share issuance looks bad, but it's consistent with a provision in the 2017 incentive plan that allows for an increase in shares on the first day of each fiscal year through 2027. 

Now what

Despite the dilution that may result from the proposed issuance, the stock looks more attractive after falling sharply in recent months. Stitch Fix is experiencing momentum as the economy reopens. Revenue increased 29% year over year in the most recent quarter, and management expects full-year revenue to grow by at least 15%. 

Stitch Fix is also seeing revenue per client inch higher, following the rollout of direct buy over the last year, which was recently rebranded as Stitch Fix Freestyle

The stock's price-to-sales ratio is now less than two -- down from about six times sales earlier this year. The lower valuation looks very compelling for a growing online retail business that is looking at a massive long-term addressable market of $127 billion in the U.S. and U.K. alone.